An Honest Look at State Budgets After ARRA Expires – Say Ahhh! A Children’s Health Policy Blog

Yesterday, three timely releases  from the Kaiser
Commission on Medicaid and the Uninsured show that state budgets are beginning
to turn around.  The 11th annual
50-state survey of Medicaid budgets, coupled with an updated brief on state
budgets in recession and recovery, and another on Medicaid provisions in ARRA
(the stimulus bill) show that the enrollment rate is slowing for a third year
in a row and state revenues are rebounding for the sixth consecutive
quarter.  However, there will not
be any jubilant celebrations emanating from states capitals just yet as this
fiscal year states are facing an increasing share of Medicaid costs.

Say Ahhh! readers are acutely aware that the reason for
this increase in states’ shares of spending is the June 2011 expiration of the
enhanced matching rate in ARRA. 
According to the updated Kaiser brief on state budgets in recession and recovery, the federal government spent almost 90 billion dollars in
state fiscal relief by increasing its share of Medicaid FMAP funds. While total Medicaid spending only increased by 7.6% in FY2009, enhanced FMAP funds were  especially vital given the 30 precent drop in state revenues. These federal funds helped to cover the
increases in enrollment as many found themselves out a job and losing
their employer-based coverage.

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Even with Medicaid enrollment slowing, the loss of
federal stimulus dollars has left states feeling strained when it comes to
paying for Medicaid.  According to
the budget survey, total Medicaid spending in fiscal year 2012 is projected to
grow at a rate of only 2.2%, making it the second slowest growth rate in the
last 12 years.  Yet states are
expected to see a 29% increase in spending as a result of the lost federal

In coping with this increased responsibility, states have
set out to try to contain costs; for example, a majority of states adopted
provider rate restrictions, while some have also instituted benefit reductions
and restrictions and newer and higher co-payments for beneficiaries.

However, it is important to note that despite the trying
circumstances, states are also looking to deliver better care and prepare for
health reform. In fact, the report finds that 37 states have submitted letters
of intent to work with CMS on more effectively coordinating care for dual
eligible populations. States are also continuing to shift the delivery of
long-term care to the community and away from institutions.

Additionally, a number of states are expanding Medicaid
managed care (24 states in 2012). 
It’s not always clear about what the motivations are behind the changes – some may be
interested in improving care management and coordination, others may wish to
gain more predictability in spending or increase accountability for access to
providers and quality of care. 

Even though states made some budget cuts in Medicaid,
overall, the report finds that the stability protections in both ARRA and
health reform prevented states from restricting their Medicaid eligibility
standards, and despite their dire budgets, many states reported eligibility
expansions or enrollment simplifications. 
As evident by the impact that the increased ARRA funding had on states’
ability to respond to the economic crisis and growing enrollment, states need a
stronger commitment from their federal partner in the program, not more cost-shifting to states.

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